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Exercise 4) The company Fired Up Ready To Go (FURTG) is considering to invest DKK 10 million in a new 3D-printing machine. The investment is expected to create the following cash flows (after tax) during the next two years (millions): CF(e=0) Probability CF(t=1) Probability CF(t=2) 10,0% 11 90,0% 8 90,0% 5 -10 80,0% 12 10,0% 3 20,0% 4 The relevant (after-tax) discount rate is 12% per year. A) What is the present value after the first year (PV1) of the investment, if the first year turns out to be a "good scenario: CF1 = 8"? B) What is the present value after the first year (PV1) of the investment, if the first year turns out to be a "bad scenario: CF1 = 3"? C) What is the net present value (NPVO) of the investment? Should FURTG start the investment or not without any real options available? The CEO of FURTG has been contacted by the Spanish businessman Obsion Forzail, who is offering the company an option to expand after the first year. The cost will be DKK 2.75 million after the first year (t=1), but the expansion will also increase the cash flow in year two by 53% (t=2). D) What is the net present value (NPVO) of the investment with the new option? The Spanish businessman estimates that the increase in NPVO will be minimum DKK 200,000. Please comment on this estimate

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